OVX Oil Volatility: What Is It?CBOE Crude Oil Volatility IndexCBOE_DLY:OVXSwissquoteThe geopolitical situation in the Middle East is one of the key fundamental drivers of financial markets this year, and it is likely to remain so over the coming months. The price of U.S. crude oil (WTI) has a direct impact on the trend of headline inflation in the United States, which in turn will influence the Federal Reserve's monetary policy decisions later this year. The higher the price of oil, the greater the probability that the federal funds rate will be increased. Conversely, if oil prices ease, the Federal Reserve should be able to maintain the status quo through the U.S. midterm elections. Two tools are particularly useful for assessing the current pressure stemming from oil prices: •Technical analysis of crude oil prices •The OVX, the "VIX" of U.S. crude oil The chart below displays the weekly Japanese candlesticks of U.S. crude oil (WTI), from which the U.S. gasoline price is directly derived. It also includes my technical chart mapping of crude oil, highlighting the key price levels and zones associated with inflationary pressure. You can also monitor the U.S. crude oil price in real time on TradingView (ticker: USOIL) and immediately assess its impact on U.S. headline inflation. The OVX (Cboe Crude Oil Volatility Index) measures the market's expected implied volatility for WTI crude oil over the next 30 days. It is calculated using option prices on WTI crude oil. In other words, the OVX does not measure past oil price fluctuations; instead, it measures how much the options market expects oil prices to move over the coming weeks. The table below summarizes the main OVX thresholds and what they imply in terms of future risk for U.S. crude oil prices. It is essentially the oil market's equivalent of the VIX: the higher the OVX, the greater the risk of a supply shock affecting crude oil prices. A high OVX therefore reflects significant uncertainty regarding the future direction of oil prices. Conversely, a low OVX indicates a calmer market environment. The real value of this indicator comes from combining it with the WTI price itself: a rising oil price accompanied by a sharp increase in the OVX may signal a geopolitical shock or growing fears of supply disruptions. In the current environment, a sharp rise in the OVX would therefore be an important signal to monitor for equity markets, inflation expectations, and the future path of Federal Reserve policy. Conversely, if the OVX declines before the Fed's September 16 policy decision, the central bank should be in a position to maintain its current policy stance. The chart below displays the weekly Japanese candlesticks of the OVX, representing the expected implied volatility of U.S. crude oil. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results. Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content. The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services. Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA. Products and services of Swissquote are only intended for those permitted to receive them under local law. All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade. Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties. The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.